As the economy deteriorates, one of the first casualties will be corporate profits.? Earnings estimates have been falling very fast for 2009.? Recently estimate cuts for 2009 have been running at about 8x the number of estimate increases.? P/E-based valuations become tricky in such an environment -- you are shooting at a moving target.? One way around this is to focus on the low (or most pessimistic) estimate, rather than on the mean estimate.? Assume that everyone else will move to where the biggest pessimist is now. This is not to say that the most pessimistic analyst today can't be too optimistic, but at least he will be closer than most. On this basis, there are some very compelling values out there.?

Below we present a list of the cheapest S&P 500 companies based on 2009 low estimates.? Since I simply do not trust the numbers, I have excluded from the list all firms from the financial sector.? However, I would note that we classify the health insurance companies under health care, and not among the financials.? I kept those names on the list, however there is substantial reason to be worried that their portfolios have lots of toxic assets in them just as life or P&C insurance companies.? Use this list as a starting point to scout for values, not as a blind buy list.?

We have eliminated all firms with Zacks ranks of 4 or 5 ("sell" or "strong sell").? The change in estimate column refers to the mean estimate, not the low estimate, but as you can see the estimates have been coming down for most of these firms, often falling quite sharply.?

Still if the low estimate holds, these firms look like fairly compelling values.? All have P/E's based on their low estimates of below 8, and several provide very nice dividend yields to reward you while you wait for economic conditions to improve.